Report: The Rising—and Falling—Stars of Global Manufacturing

It is no secret rising labor and other costs have hampered what was once China’s unstoppable drive to make every widget the world could ever use.

But that is only one part of a larger reshuffling taking place in global manufacturing. According to a new report from the Boston Consulting Group—which for several years has tracked the competitiveness of global producers—the old assumptions of low cost versus high-cost regions is outdated. That view held large swaths of the globe, mainly in Asia, Latin America and Eastern Europe, held an unbeatable cost advantage over richer, established economies. But no more, says BCG.

“The new map increasingly resembles a quilt-work pattern of low-cost economies, high-cost economies, and many that fall in between, spanning all regions,” the report said.

BCG analyzed the cost structure of 25 leading exporters, focusing on wages, productivity, the price of energy and exchange rates. The consulting group estimates these countries account for nearly 90% of global exports of manufactured goods.

It found some economies long thought of as low-cost hubs are under pressure. For instance, Poland, the Czech Republic and Russia, all have seen erosion in their cost competitiveness over the past decade.

The changes are creating new winners—and new losers—as well as a batch of countries simply holding their own.

Mexico is now cheaper than China and the U.K. has emerged as a low-cost manufacturer relative to most of its European neighbors, according to the BCG calculations. Brazil, meanwhile, has become one of the world’s priciest places to make things; its cost structure is tied with those of Italy and Belgium in the BCG rankings.

The study used the U.S. as a baseline and found Brazil’s average costs went from 3% lower than in the U.S. in 2004 to 23% higher today. BCG notes Brazilian factory wages more than doubled over the decade, while productivity growth faltered. The cost of buying electricity for factories in that South American country have doubled, while natural gas prices have leapt nearly 60%.

The clear winners in this global scramble, according to BCG, are Mexico and the U.S. The two neighbors saw their competitiveness improve more than in any other country studied. “Because of low wage growth, sustained productivity gains, stable exchange rates, and a big energy-cost advantage, these two nations are the current rising stars of global manufacturing,” the report said.

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